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The Big Business of Organized Crime in Mexico

Mexican President Felipe Calderon told a U.N. representative in Mexico City recently that the deployment of the Mexican military in counternarcotics operations is only a temporary solution, and that he plans to phase out the military's role in these efforts. In recent weeks, the military has launched a large-scale security operation in select cities along the U.S.-Mexico border, disarming local police forces and conducting sweeps and raids in an effort to strike back at the increasingly violent Mexican drug cartels.

Calderon's comments address a standing question on both sides of the border: What is the best way to deal with cartel activity? Germane to that question is defining just what it is that the security forces are up against.

The violence taking place in northern Mexico — and leaking across the border into the southern United States — is viewed by some as the result of the actions of narco-terrorists, while others call it an insurgency. But for the most part, those charged with countering the problem refer to it as criminality — more specifically, as organized crime. Defining the problem this way shapes the decisions regarding the tools and policies that are best suited to fighting it.

STRATFOR's counterterrorism expert gives further perspective on Mexico's drug cartels, their potential evolution and their impact on U.S. border security in this special two-part podcast, for STRATFOR members only.Not a member yet? Take out a risk-free trial today.

On both sides of the border, the primary forces tasked with dealing with the drug cartels and the spillover effects are law enforcement elements. In a law enforcement operation, as opposed to a counterinsurgency or counterterrorism operation, the ultimate goal is not only to stop the criminal behavior but also to detain the criminals and amass sufficient evidence to try them in court. The need for such evidence is not always as pressing in counterterrorism cases, in which the intelligence case can be made without having to reach the stricter threshold prosecution would require. Since taking office, Calderon has involved the military more than his predecessors in what traditionally has been the realm of law enforcement. This has had positive results against drug traffickers, at the expense of occasional higher tensions between federal and local authorities.

Meanwhile, on the U.S. side of the border, the Bush administration's war on terrorism appears much more pressing and therefore receives many more resources than the fight against illegal drug activity and border violence. This does not mean the United States has not devoted modern technological resources to battle drug traffickers along the border. In fact, it has devoted significant intelligence assets to assist in tracking and cracking down on the drug cartels, from collecting signals and electronic intelligence to offering training and assistance to Mexican forces.

In viewing this as mainly a law enforcement issue, rather than a military one, several additional problems are being encountered on both sides of the border — not the least of which is a significant lack of coordination. On the Mexican side, local law enforcement often is infiltrated by the cartels and does not cooperate fully with essential government agencies — a phenomenon not unheard of north of the border as well. On the U.S. side, the various counties along the border like to run their own programs, and there are issues of federal American Indian land and private land to consider as well. A similar split between federal and local regulations and enforcement occurs on the Mexico side, where drug laws are all federal, so local officials can make arrests but must hand over suspects to the federal police. Further, while there is some level of coordination between the Mexican and the U.S. sides, frequently there is a lack of communication or significant miscommunication, such that an operation on one side of the border is not communicated to the other side.

These problems exist in many places, but they are particularly sensitive on the U.S.-Mexico border. A miscommunication between the United States and, say, the Colombian government does not have the immediate impact as a similar miscommunication along the U.S. border. Moves are under way to increase the coordination of overall counterdrug efforts along the border, but the contentious issue of immigration adds a second layer to the problem. For the United States, while there apparently are similarities between what is happening in Mexico and previous counterdrug fights in Colombia — or even in Thailand and Afghanistan — the contiguous border consistently adds a layer of complexity to the problem.

The United States has experience shutting down major drug-trafficking routes. It significantly disrupted the Caribbean drug routes, using naval interdiction (though this shifted many of these routes to Mexico, accelerating the rise of the Mexican cartels). And there is plenty of global experience sealing borders. The Germans were quite effective at sealing the border after World War II, as were many of the Soviet bloc states. The problem, of course, with completely sealing a border is that it stops trade, something the United States is not willing to do. Therefore, if the United States cannot effectively seal the border without risking trade, it instead can channel the flow of traffic and migration across the border. But even by channeling the flow, it is extremely difficult to separate the illegal trade from the legal.

As we have mentioned before, there is a significant economic component to this trade, both legal and illegal. By some estimates, some $24 billion a year is transferred to Mexico as a result of the drug trade. This is essentially free money and needs to go somewhere, making it a substantial portion of the Mexican economy. While the Mexican government is keen to stop the violence along the border and among the cartels, in some ways it is less interested in stopping the flow of money. History has shown that countries with large-scale criminal enterprises — such as the United States in the 1920s and 1930s — get rich, given the tremendous pool of capital available for investment. This illicit money eventually works it way into the system through legal channels.

This is a fundamental aspect of the phenomenon we are seeing now. It is a classic case of organized crime. The Mexican drug cartels are, for the most part, organized crime groups. What distinguishes Mexican organized crime groups and others from revolutionaries, terrorists and hybrid organizations such as the Revolutionary Armed Forces of Colombia (FARC) is the underlying principle of making money.

In the global system, there is an economy of crime. It currently is built around drugs, but any item that is illegal in one place and legal in other and has an artificially inflated price quickly can become the center of the system. Human trafficking, smuggling and counterfeiting are cases in point, as was alcohol during prohibition. Products move from where they are legal (or at least not well-controlled) to where they are in demand but illegal. The money, of course, moves in the opposite direction. That money eventually ends up in the normal banking system. Organized crime wants to make money and it might want to manipulate the system, but it does not seek to overthrow the system or transform society. Insurgencies and revolutions seek to transform.

In the end, organized crime is about making money. Endemic organized crime leads to corruption and collusion, and in the long term often burns itself out as the money earned through its activities eventually moves into the legal economic system. When organized crime groups become rich enough, they move their money into legitimate businesses in order to launder it or a least use it, eventually turning it into established money that has entered the realm of business. This can get more complicated when organized crime and insurgents/guerrillas overlap, as is the case with FARC.

The problems we are seeing in Mexico are similar to those we have seen in past cases, in which criminal elements become factionalized. In Mexico, these factions are fighting over control of drug routes and domain. The battles that are taking place are largely the result of fighting among the organized crime groups, rather than cartels fighting the Mexican government. In some ways, the Mexican military and security forces are a third party in this — not the focus. Ultimately, the cartels — not the government — control the level of violence and security in the country.

As new groups emerge and evolve, they frequently can be quite violent and in some sense anarchic. When a new group of drug dealers moves into a neighborhood, it might be flamboyant and excessively violent. It is the same on a much larger scale with these organized crime cartels. However, although cartel infighting is tolerated to some extent, the government is forced to react when the level of violence starts to get out of hand. This is what we are seeing in Mexico.

However, given that organized crime tends to become more conservative as it grows and becomes more established, the situation in Mexico could be reaching a tipping point. For example, during the summer of 2007, the Gulf and Sinaloa cartels declared a temporary truce as their rivalry began to impact their business operations. As the competition among the cartels settles, they could begin to draw back their forces and deal with those members who are excessively violent or out of control. This is simply a way of assuring their operations. The American Mafia followed a similar pattern, evolving into an organism with strong discipline and control.

There is a question now as to whether the Mexican cartels are following the American model or imitating the Colombian model, which is a hybrid of organized crime and an insurgency. In fact, they might be following both. Mexico, in some sense, is two countries. The North has a much higher standard of living than the rest of the country, especially the area south of Mexico City. In the North, we could ultimately see a move in the direction of the American Mafia, whereas in the South — the home of the domestic guerrilla groups Zapatista National Liberation Army and Popular Revolutionary Army — it could shift more toward the Colombian model.

While the situation is evolving, the main battle in Mexico continues to be waged among various cartel factions, rather than among the cartels and the Mexican government or security forces. The goal of organized crime, and the goal of many of these cartels, is to get rich within the system, with minor variations on how that is achieved. A revolutionary group, on the other hand, wants to overthrow and change the system. The cartels obviously are working outside the legal framework, but they are not putting forward an alternative — nor do they seem to want to. Rather, they can achieve their goals simply through payoffs and other forms of corruption. The most likely outcome is not a merger between the cartels and the guerrilla groups, or even a shift in the cartels' priorities to include government overthrow. However, as the government turns up the pressure, the concern is that the cartels will adopt insurgent-style tactics.

Organized crime is not street crime; it is systemic geopolitical crime. It is a significant social force, bringing huge amounts of capital into a system. This flow of money can reshape the society. But this criminal supply chain runs parallel to, and in many cases intersects, the legitimate global supply chain. Whether through smuggling and money laundering or increased investment capital and higher consumption rates, the underground and aboveground economies intersect.

U.S. and Mexican counternarcotics operations have an instant impact on the supply chain. Such operations shift traffic patterns across the border, affect the level of stability in the border areas — where there is a significant amount of manufacturing and trade — and impact sensitive social and political issues between the two countries, particularly immigration. In this light, then, violence is only one small part of the total impact that cartel activities and government counternarcotics efforts are having on the border.